U.S. judge blocks New York credit card surcharge law

NEW YORK – A federal judge on Thursday blocked enforcement of a New York state law that subjects retailers to criminal penalties if they impose surcharges on customers who choose to pay by credit card rather than cash.

U.S. District Judge Jed Rakoff in Manhattan ruled in favor of several retailers who challenged the law on various grounds, including that it violated their free speech rights by prohibiting them from alerting customers to the extra costs of paying with credit cards.

Rakoff said the law violated the First Amendment of the U.S. Constitution, saying it "perpetuates consumer confusion by preventing sellers from using the most effective means at their disposal to educate consumers about the true costs of credit-card usage."

The law subjects retailers to a potential one-year prison sentence and $500 fine for imposing credit card surcharges. Rakoff issued a preliminary injunction blocking the law's enforcement while the case before him is pending.

Authorities including New York State Attorney General Eric Schneiderman and Manhattan District Attorney Cyrus Vance had argued that the law protected shoppers by enabling them to rely on advertised prices, rather than be surprised at checkout by unexpected surcharges.

Those offices had no immediate comment.

Retailers have long complained about the cost of accepting credit cards, including the so-called interchange or "swipe" fees that they pay to card networks such as MasterCard Inc and Visa Inc .

John Gleeson, a federal judge in Brooklyn, New York, is weighing approval of a $7.2 billion class-action settlement between retailers, MasterCard and Visa over swipe fees.

The Manhattan case is Expressions Hair Design et al v. Schneiderman et al, U.S. District Court, Southern District of New York, No. 13-03775.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and David Gregorio)